Accountability in the Family Business

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"People and money!" That's the answer you're likely to get if you ask the typical family business owner to name the two biggest problems in running a successful operation.

You have an employee who is not carrying his or her weight. You've talked to the person about it, but nothing has changed. You know other employees see the problem, too; you're hearing them wonder if you are going to do anything about it. It's becoming as much of an embarrassment as it is a major drain on the business. And, to make things worse, the employee in question is your son whom you had hoped would be the next leader of your family business.

Nobody really understands the inner turmoil this problem creates without experiencing it first-hand. The problem could be a daughter, brother, nephew, sister, or even a parent. Problems connected with family employee performance and accountability are among the most frequent and troublesome difficulties with which we, as family business consultants, are asked to help. Very little has been written on the subject so we dedicate this column to those of you struggling with what to do.

In essence, we suggest these two steps to help resolve these issues:

Understand the different roles family members play in your company. That is, for example, the employee's role as a family member vis-a-vis those involved with him/her in management or the manager's role as a family member vis-a-vis involved with him/her in ownership.

Make performance measurable against objective standards. That is, hold people accountable for their performance.

Accountability is actually one of the finest forms of recognition in a family business. It is recognizing that both the task and the person responsible are important and needed.

Confusing Employment and Ownership

In a family business there is the coming-together of three separate systems: family, management and ownership. Although separate systems, members' roles in a family company cause each to overlap with the others, and it is in these areas of overlap that the greatest confusion and conflict arises.

Just as the worlds of family and business overlap and intermingle, so, too, can differences in the expectations and obligations of ownership and employment become confused. Employees in a business receive compensation for their labor contributing to the company's profitability. When the employees receive paychecks in exchange for their labor, the company in a sense owes them nothing more and vice versa--they are even. On the other hand, owners do not receive a paycheck. They get dividends, equity enhancement and other perks, not for their labor but for their willingness to risk capital.

In the typical family business, owners and employees are often the same people. This can be confusing enough for the first generation. It can-and often does-get worse in the second. Sometimes, for example, family employees, who are or will be owners, are paid less than comparable non-family employees; sometimes they are paid more. The rationale is that a family owner who is also an employee, has ownership equity and therefore deserves less; or has the responsibility of ownership and therefore deserves more.

We strongly suggest that ownership and employment be thought of separately when it comes to compensation. Employees should be paid according to their contributions to the business as employees. That is, all family members involved in the business should be viewed the same, from the youngest, helping in shipping, to you as CEO. The benefits and burdens of being a family member and/or owner should be immaterial to the issue of compensation.

What anyone is truly worth is measurable. The test for owners and managers is in sitting down to establish the standards for accountability.

Accountability and Criticism

Being held accountable for performance by another family member in the business is often experienced and interpreted as criticism, punishment or a personal attack. No wonder family members shy away from it. We recently helped four second-generation siblings develop job descriptions and achievement targets (goals against which performance is measured) for their areas of responsibility. This was necessary after one brother, the president, got into difficulties with a younger sibling over his job evaluation. Was it the assessment that led to anger and conflict in the course of the manager/employee relationships, or just the older brother beating up the younger?

In business, a cardinal rule is that the individual serves the needs of the business. In the family, on the other hand, the rule is that the family serves the health and well-being of the individual. While parents provide for the needs of children in a family, in parent/child family business relationships, however, a parent can get caught in the classic family/management conflict. That is, being confused as to what's required as the boss and what's expected as a parent.

Among siblings in the family business, there is a presumption of equality as family members. It is difficult to have one of the "equals" evaluating the performance of another "equal." It can quickly become personalized depending on how good or bad the relationship as family members has been over the years. That is why standards of accountability are critical.

For accountability to work well there must be clear and measurable expectations against which performance is measured. For example, to set the expectation, "to do a better job handling order processing" makes it difficult to measure the desired outcome because there are no objective standards of what is meant by "better." Measurement is not possible, and it is highly possible that each party involved will have different views.

A preferred way to state such an expectation would be "Within six months to make sure that a minimum of 80 percent of all orders are processed and delivered to the production manager within 48 hours from when they are received." Then there is no question about whether or not it is accomplished.

This approach does wonders for minimizing subjectivity because it honors both the family cardinal rule for being fair with the individual and the business cardinal rule for looking after the needs of the business. Other standards for accountability include job descriptions, clear procedures, annual achievement targets and regular performance reviews.

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Edwin and Colette Hoover are nationally known consultants and speakers on family business management and relationship issues. For more information or to obtain a free subscription to Family Business Briefings, call 630/495-7600; fax 630-495-8901; or e-mail FamBzns@aol.com.